Partial distribution/Cash liquidation - box 9 1099 - how to report

[Rick19744]

@petros63 good call and you are welcome.

[balindo22]

One year later, this is happening again.

Anybody knows if Turbo is going to fix it?

[PattiF]

In order to enter the information in Box 9 of the 1099-DIV which has information on a complete cash liquidation distribution without a 1099-B, you need to take the following steps:

• In Personal Income  Go to Investment Income
• Click on Stocks, Mutual Funds, Bonds, Other
• Then Add More Sales
• Did you get a 1099-B or a brokerage statement for these sales?
• Enter No
• Then I'll enter one sale at a time under Tell us about this sale
• Now enter the 'sale' of the liquidated investment using the box 9 amount as the proceeds received for the sale.
• You will have to enter your basis in the investment

[TaxNoob18]

pattif12,

You said "In order to enter the information in Box 9 of the 1099-DIV which has information on a complete cash liquidation distribution without a 1099-B"

This isn't a complete liquidation. It's partial liquidation without 1099-B. There will be another distribution this year (2021) of unknown amount. In my case, I've received 2 distributions (in 2019 and 2020) and the total amount I receive is still lower than my basis by a couple of hundred dollars. It is still a loss as of now.

How do we report partial liquidation?

[DianeW777]

No.  A loss will not occur until you have recovered all of your cost basis of your investment.

[TaxNoob18]

I understand I can't claim a loss. The real question is, do I have to report partial liquidation distribution? If so, how? That has been my question since tax year 2019. I still have no clue because Turbotax seems to ignore partial liquidation completely.

[DianeW777]

I would advise not to report a liquidating distribution that is still a part of your cost basis recovery.  It would be in and out of your tax return and it is a manual adjustment so to speak.  You can keep your records and respond if the IRS every has a question.

Records to keep: (Required as routine for any dividends and investment purchases)

1. The amounts you paid for this investment from the beginning until all liquidation payments have been received.  This would include any reinvested dividends, if applicable.  
2. Total amount of shares purchased at each purchase date 
3. Total of any prior year (before liquidation) return of capital dividends / nontaxable distributions (shown on Form 1099-DIV)
4. Forms 1099-DIV or all years as proof of any return of capital / nontaxable distributions

These records may be needed until three years after the final liquidation is paid out. If and when you receive liquidating distributions that exceed your cost basis only then do you have a reportable tax sale transaction.

[TaxNoob18]

Thanks for your quick replies. I keep a record (printed transactions from the broker) of the stock purchase in early 2000 (ticker: YHOO back then). I also have a record of 1099DIV in 2019 (initial partial liquidation distribution) and 2020. It's been over 20 years and all dividends were paid to me as cash and reported in 1099DIV every year since I acquired the stock but I have destroyed those 1099 DIV. I only have the last 7 years of 1099 DIV. Is that good?

One last question, does cost basis include fees? If I paid $10,000 + $30 (fee for the broker) to acquire the stock, is my cost basis $10,030 or $10,000?

[DianeW777]

Yes, that is good.  You don't need documentation for dividends, other than nontaxable distributions, since they were not reinvested.

Yes, cost basis includes fees paid to the broker at purchase and sale (add the sale fees to cost basis if you have any).

[TaxNoob18]

There won't be any sale fees because I never sold that particular stock until it was liquidated in 2019. Once again, thanks for your quick replies. I really appreciate it. 

[TaxNoob18]

Fast forward to January 2022...

I received another distribution at the end of 2021 and it exceeded my cost basis by about $1000. That's a gain and I bought this stock in early 2000. I am going to have to report it as long term capital gain for tax year 2021.

How do I do this in TurboTax?

[ThomasM125]

@TaxNoob18 You will need to report the distribution on your tax return. You report it as an investment sale. Here are the steps:

In the Federal section of TurboTax:

   1. Income and expenses

   2. Investment Income

   3. Stocks, Cryptocurrency, Mutual Funds, Other (1099-B)

   4. Choose the Other option on what type of investment was sold

   5. Type in the name of the company when TurboTax requests a name 

   6. Choose Other for the type of investment sold and answer the questions

   7. Enter the Proceeds you received equal to the gain you want to report

   8. Leave the Cost Basis blank

@TaxNoob18 

[Edited 1/19/22 at 4:05 PST]

[TaxNoob18]

Say if last year's distribution is $1000 over my cost basis, enter $1000 proceeds? Is it ok to leave cost basis empty/blank?

[DaveF1006]

@TaxNoob18  Yes it is permissible to leave cost basis empty/blank so that it is taxed as a long-term capital gain.

[TaxNoob18]

Thanks to ThomasM125 for the step by step instructions and DaveF1006 for your reply. I have one last question. Here's the scenario:

I did not recover all my cost basis as of tax year 2020. Instead, my cost basis was reduced to $468.84 after receiving cash distribution twice (in 2019 and 2020).

I received the third cash distribution of $1,477.30 at the end of tax year 2021. This time it exceeds the remaining cost basis. So there is a long term gain of $1,008.46 ($1,477.30 - $468.84 remaining cost basis).

As I'm preparing my 2021 taxes, how should I report this? Do I report Proceeds of $1008.46 and cost basis $0 on the Schedule D?